Important age milestones seem to come in waves, especially once you secure your retirement. A lot of rules around financial planning and tax issues impact people at different ages, which everyone should know about when retirement planning.
Important Age Milestones for Parents or Grandparents
Some of the most important age milestones may or may not apply to you, so keep this in mind.
Age 0: Birth of a Child
If you have younger kids or grandkids, you can set up a 529 account for the child. These accounts are college savings accounts for the child. You can also set up a UTMA or UGMA account, which are types of custodial accounts that you can set up for minors.
Age 13: Child and Dependent Care Credit
At age 13, a child is no longer eligible for the child and dependent care credit.
Age 17: No Longer Eligible for a Child Tax Credit
When a child reaches age 17, the tax credit helps you deduct as much as $2,000 per child from your taxes if they’re a dependent.
Age 18: Age of Majority
Children reach the age of majority at age 18 in most states. The government now sees the child as an adult and the accounts you set up for them, such as the UTMA or UGMA, are now transferred to the “new adult.”
You’ll revoke your power over these accounts and need to go through the transfer process.
Age 21: Age of Majority
In some states, the age of majority is 21, and this is when all the custodial transfers for these accounts must take place.
Age 24: Full-Time Student Loses Kiddie Tax
A full-time student is no longer eligible for a “kiddie tax” at 24.
Age 26: Child No Longer Eligible for a Parent’s Health Insurance Coverage
When the adult child reaches age 26, they’re no longer eligible for their parent’s health insurance under the Affordable Care Act. We hear about this one a lot. Parents help get their kids through college, the child stays on the parent’s health insurance and then they’re shocked to learn that they’re no longer eligible to be on their parent’s plan.
Important Age Milestones for Retirement Planning
Age 50: Retirement Contribution Catch-ups
As young as age 50, there’s an important milestone that occurs. You can make “catch-up” contributions for your 401(k), 403(b) and 457 plans. In 2023, if you’re under 50, you can contribute $22,500 each year.
If you’re 50 or older you can add an additional $7,500 to the account, for a total of $30,000 per calendar year.
IRAs also have a catch-up contribution that you should consider.
Age 50: Social Security Benefits for Disabled Widows and Widowers
If you are a disabled widow or widower, you can file for Social Security benefits.
Age 55: HSA Catch-up Contribution
If you have a health savings account (HSA), you have catch-up contributions of an additional $1,000 on top of regular limits of $3,850 for a single person and $7,750 for a family.
Age 59 1/2: Reach the Age of Retirement Asset Withdrawal Without Penalties
In most cases, if you take money out of your retirement account before the age of 59 ½, you’ll be penalized for doing so. The early withdrawal penalty is 10%. Now that you’re 59 ½, you still pay taxes on many of these accounts, but you aren’t penalized for the withdrawals.
You also have the option, in most cases, to rollover from a 401(k) to an IRA. When you do a rollover, you now have the option to invest in stocks and ETFs. An IRA frees up the option of investing your retirement money in a way that is not possible with an employer retirement account.
You can work with an advisor to help you with the retirement planning at this point.
Age 62: Social Security Eligibility at a Reduced Rate
You’ve paid into Social Security your entire life, and now you can begin taking from this account at a reduced rate. We are having major discussions with our clients on what to do at this critical age. In 2023, you have a limit of $21,240 in income.
If you make more than this amount, for every two dollars you make, one dollar in your Social Security is reduced. We don’t recommend that anyone making more than the $21,240 figure above take Social Security because of this reduction rule.
Age 65: Medicare Eligibility
You can receive Medicare at the age of 65, but you can apply for it at age 64 and 9 months. Now is the time to review plans and learn costs.
If you have an HSA that you’ve been funding, you can use your HSA for non-medical withdrawals because you’re eligible for Medicare. Before this age, any funds in your HSA are designated for medical and healthcare purposes.
Age 66 – 67: Full Retirement Age for Social Security
If you’re working and still bringing in income, you may want to wait until full retirement age to take Social Security. The income limit we mentioned at age 62 is now removed, allowing you to take your benefits while earning as much money as you can.
You can still work, receive good money, and still get 100% of your Social Security Benefits.
The full retirement age has changed a lot in the past decade or so, and the age for full retirement depends on the year you were born. The current ages are:
- Born between 1943 and 1954: 66
- Born in 1955: 66 and 2 months
- Born in 1956: 66 and 4 months
- Born in 1957: 66 and 6 months
- Born in 1958: 66 and 8 months
- Born in 1959: 66 and 10 months
- Born in 1960 and beyond: 67
We believe that this age may be adjusted again in the future.
Age 70: Maximum Social Security Benefit
Deferring your Social Security until age 70 allows you to receive your maximum Social Security benefits. Your benefits will no longer increase after this age, even if you continue contributing to the system.
For 99.9% of people, this is the age when you want to take your benefits if you haven’t already.
Age 70 1/2: Charitable Contributions from Your Retirement Accounts
At the age of 70 and a half, you can begin taking contributions from your retirement accounts, such as your IRA, and then give them to charity using a qualified charitable distribution. If you use this method of charitable contributions, the key is that the money never hits your bank account.
The money goes from the retirement account directly to the charity, allowing you to avoid any taxes on it while also maximizing the amount you give to charity.
Age 73: Required Minimum Distributions (RMDs)
Age 73 is when you start taking your RMDs. This used to happen at age 70 and a half, but now you can wait until age 73 to take RMDs. You must begin taking RMDs at age 73 if you were born before 1960.
If you were born in or after 1960, the required age is 75.
For us, when it comes to retirement planning, these are some of the things that we like to discuss. A lot of milestones change and are easy to miss. If you would like to have a review of important milestones for you, be sure to reach out to us.Click here to talk to us about important age milestones.
